The unsung hero who must be worth a King’s ransom

Thursday 26 November 2009 08:42 BST

Serious supporter: Mervyn King secretly put £62 billion into two banks to keep them going

There is one man who should have earned a sizeable bonus this year in the City of London but will not get it. He took a significant level of risk on behalf of his organisation for altruistic reasons rather than to better himself.

He was at the centre of two of the biggest loan deals ever seen in the world not just in this country.

He is on course to benefit all stakeholders (as in you and me as taxpayers) not just shareholders. He is unlikely to get any reward for several years. Sounds just like what Sir David Walker expounds today in his report on bank directors.

Bank directors don't come much bigger than Mervyn King, Governor of the Bank of England.

Am I alone in not fully realising that he had as much as £62 billion at his disposal when the UK side of the banking crisis hit its nadir in October 2008? Did you know that the Bank of England could get hold of more cash overnight than is spent on UK defence in two years? I don't think so.

What we now know is that King and the Bank, with the cognisance and support of the Treasury and Financial Services Authority, did not simply keep the cash machines stuffed with £20 notes on that fateful weekend of 17 October 2008 but they prevented Royal Bank of Scotland and HBOS going under.

That can never be underestimated. We are talking about riots and blood flowing through the streets as neighbour beat neighbour if two of the then five High Street banks had collapsed.

But King played it just as he has played everything under his remit along the way of wanting banking to be "boring".

He had also learned from the disastrous — and very public — rescue of Northern Rock, winning the argument that emergency aid must be kept secret.

So it is scarcely any wonder that he finally felt able to reveal the £62 billion bombshell well after it had become history.

Liberal Democrat Treasury man Vince Cable is, for once, wrong to demand that there had been more transparency earlier. It is no coincidence that King's revelation came on the day that Lloyds Banking Group, the unfortunate rescuer of HBOS, was in a position to unveil its rights issues terms, terms which look sure to get away.

King turned down a £110,000 pay rise last year when he was re-appointed as Governor, keeping him on a basic salary of just short of £300,000.

That is not only less than one tenth of what many people in the City earn but one hundredth of what the handful of mega-buck players will get. The Governor is not paid a bonus — ever.

And while most of the mega-bonuses go to faceless anonymous bankers who avoid the glare of publicity, King and his team face their political masters each month and the media day by day.

In truth, all that King will get when he retires in three years' time, or is kicked out by the Tories earlier, is a jolly decent pension and a title.

But remember that he is the first serving Governor of the Bank to have been called to an audience with the Queen.

She should ignore her politicians and make him Lord King of Aston Villa. After all her two of her grandsons both claim to support that team too.

Why CoCos are not everyone's cup that cheers

Is CoCo the new bedtime drink every banker should be taking to ensure a trouble-free night's sleep?

You might think it from the absurdly upbeat reaction to Lloyds converting some £7 billion of traditional bonds into these new fangled hybrids called contingent convertibles. They pay hefty interest while they are bonds but convert into shares if the bank's comfort blanket of core capital ever falls below 5%.

Ben Lord of M&G's bond team has raised some very pertinent points about the Lloyds CoCos. He says it is far from impossible that Lloyds's core capital will fall below 5% in the next few years in which case the shares (which the CoCos will have become) will be worth very little.

Lord even suggests that in the future management or even a regulator could manipulate it so Lloyds's core tier falls below 5% briefly, just so it can convert the high-yield CoCos into low or non-yielding shares.

Not much incentive for fund managers to buy and hold CoCos long term then.

Barry fires a broadside at Clipper's captains

Fantastic reaction to my seafarers' tale last week about Sir Robin Knox-Johnston's bid to take his Clipper Ventures private at a knockdown price.

First the latest stage of Clipper's round the world race saw two yachts collide spectacularly as they crossed the starting line in Cape Town.

Then came a phone call from Clipper's largest independent shareholder, David Barry, whose Guernsey-based Value Investments owns 10% of the company. Barry spent on average 8p a share or a little short of £300,000 buying his stake and is, unsurprisingly, not best pleased with Knox-Johnston's bid of 5p a share.

Barry said: "It's an absolute disgrace the way the company has behaved since it was delisted. Now just as things seem to have been turned around in the business they want to take it private."

He has made a detailed complaint to the Takeover Panel, including asking how two long-term directors of Clipper can really be deemed "independent" when they recommended the offer. He also points out that the company had assets worth 13p a share last time it reported.

Barry is not a man to mess with as the directors of the Dart Valley Railway and the Duke of Buccleuch's Alba Trees have found.

He is keen to contact other disgruntled investors in Clipper via his website djbarry.co.uk.